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Bankrupt Apparel Stores Finally Learn That Rent Is Expensive; Try To Make A Comeback Online

Courtesy of Zero Hedge

After retail bankruptcies soared an astonishing 110% in the first half of 2017 (something we discussed here: The Amazon Effect: Retail Bankruptcies Surge 110% In First Half Of The Year), it seems that the new wave of retail operators are finally figuring out that in-store payrolls and excessive mall rents are simply an insurmountable economic disadvantage in the post-Amazon world. The following info-graphic from the Wall Street Journal helps to put the offline vs. online cost structure of apparel retailers into perspective:

Retail private equity investors have purchased a number of failed apparel companies over the past 12 months.  But, while they're buying the brand name and maybe some manufacturing equipment, these PE firms are not assuming many mall leases.

Gordon Brothers purchased Wet Seal for $3 million in March, the same month that the teen retailer sold its inventory and closed the last of its stores, and is now working to restart Wet Seal’s manufacturing. It aims to open an online store in the fall.

Private-equity firm Sycamore Partners in 2014 hired Newmine LLC to relaunch Coldwater Creek, a fashion brand that had closed that year but retained a following among middle-aged women. Clothes were available for sale online four months later after a “fast-paced, SWAT-team-like” effort, said Newmine Chief Executive Navjit Bhasin.

After a liquidation, “all that’s left is the brand name and the customer following,” Mr. Bhasin said. “If it takes 2½ years to revive, the customer is gone.”

Companies like Onestop Internet, which handles orders for dozens of websites out of a warehouse in Compton, Calif., make it easier for former brick-and-mortar chains to transition to online-only fashion labels. Brand owners “need to extract the value of the intellectual property [but] they don’t want to have to worry about customer service, digital marketing and web developers,” said Daniel Brewster, a senior vice president at Onestop.

But, it's not just Wall Street investors pouring money into taking apparel retailers offline. T-shirt wholesaler Gildan recently scooped up American Apparel's brand name and manufacturing equipment and plans to relaunch an online store later this summer.

American Apparel’s new owners are planning the brand’s online-only future even as its liquidation is under way. Canadian T-shirt wholesaler Gildan Activewear Inc., which paid $88 million for the brand name and some manufacturing equipment, is aiming to relaunch American Apparel this summer—though the brand’s website currently is just a landing page.

Gildan opened an office in Los Angeles, hiring a few American Apparel marketers to keep the brand on “life support,” as Garry Bell, Gildan’s vice president of marketing and communications, put it. The company has already revived American Apparel’s wholesale business, lining up suppliers for a “Made in the USA” line and a less expensive one to be manufactured in South America.

“It’s really important for us to do that as quickly as we can,” Mr. Bell said.

Of course, converting to an online business model for apparel manufacturers may be a short-term gain but a long-term disaster as it will eventually serve to further commoditize apparel prices.  Moreover, we're pretty sure that anything these small, disparate brand owners can do online, that Amazon can do better.


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